Warren Buffett Sells Puts on Burlington Northern (BNI) ~ market folly

Monday, October 13, 2008

Warren Buffett Sells Puts on Burlington Northern (BNI)

Boy, has Mr. Buffett been busy lately. His most recent escapade includes selling puts on Burlington Northern (BNI). Buffett already has a massive position in BNI (owns 18% of the company) and apparently he likes it enough and wants to add more. A Berkshire Hathaway filing on October 8th showed that Buffett had sold puts on BNI for $7.02 an option with a strike of $80. He sold 1,309,524 shares of put options that are exercisable before 12/08/08. With BNI shares making a round-trip from where he bought them last year, Buffett seems keen to pick some up. He has essentially drawn lines in the sand at $80 and $73 for BNI.

Buffett clearly has deemed BNI a solid value at $80 a share and is keen to load up whenever it hits that pricepoint. He has essentially bet that the odds of BNI trading significantly below $73 a share are pretty slim. So, he sits back and collects the premium from the options and then happily buys the shares where he wants if he is exercised upon.

Main point here is that Buffett = still bullish on BNI. And, he loves it at $80 or less. Looks like Warren is starting to warm up to derivatives after all.

UPDATE: Buffett was doing it again.

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